(Bloomberg) -- Canada’s six largest banks have all added ESG components to their chief executive officers’ compensation frameworks, putting them in a small minority of companies that tie executive pay to such measures.

How environmental, social and governance matters affect pay varies by firm, as does the percentage of compensation involved. Still, the Canadian lenders stand out because only 9% of the 2,684 companies in the FTSE All World Index tracked by researcher Sustainalytics in a 2020 study had tied executive pay to ESG.

The moves, disclosed in the banks’ proxy circulars earlier this month, put them at the front of a push by activists and investors to establish incentives for actions like reducing emissions and diversifying workforces. At Canadian Imperial Bank of Commerce, the pressure to make changes also came from within, said Sandy Sharman, head of the bank’s people, culture and brand team.

“We didn’t want this to be something that we just report on and it’s a check-box,” Sharman said. “We actually wanted to drive accountability, and we also wanted to put areas in there that we wanted to improve. You need that healthy tension to move up your game.”

Canada overall is ahead of the curve, with 16% of its companies studied by Sustainalytics reporting relatively transparent ESG criteria tied to pay. That trails only Australia, at 20%.

“From an investment perspective, as well as from a corporate perspective, it’s becoming clear that putting more onus on executives to steer their companies toward a lower-impact future on those types of issues, including climate change, is more and more important,” said Martin Vezer, the Sustainalytics researcher who led the study.

Linking progress on ESG to pay can prompt firms to make substantive changes rather than just image-polishing moves, said Harlan Zimmerman, senior partner of activist investor Cevian Capital AB, a Stockholm-based firm with about 12 billion euros ($14 billion) under management.

“It enables shareholders, through the existing mechanisms of remuneration consultation, to engage with boards,” Zimmerman said in an interview. “Because pay plans are subject to ‘say on pay’ votes, shareholders are in a strong position to influence the ESG targets.”

CIBC’s plan goes beyond the executive suite and affects variable compensation for the majority of the company’s employees, Sharman said. Individual executives often will have additional ESG measures built into their pay plans as well.

At Toronto-Dominion Bank, large investors have been bringing up ESG more frequently, and that has played a role in policy-making. The bank’s ESG pay plan is tied to its public commitments, such as a goal of achieving net-zero carbon-dioxide emissions from operations and financing activities by 2050, said David Fellows, Toronto-Dominion’s senior vice president of human resources.

“This isn’t a once-and-done,” Fellows said. “We’ve been making progress over a number of years, and we’ll continue to evolve our approach.”

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